1

Income Taxes on Individuals

2

PERSONAL EXEMPTIONS These are arbitrary amounts allowed by law to be deducted from income to coverthe personal living or family expenses of the taxpayer.

Kinds of Personal Exemptions1. Basic Personal Exemptions Individual taxpayers regardless of status are entitled to P50,000 personal exemptions. Under RA9504 (RR 1-2009) which took effect July 6, 2008, individual taxpayers are now just classified as either “single” or “married” entitled to a uniform amount of personal exemption of P50,000. In case of married individuals where only one of spouses is deriving gross income, only such spouse shall be allowed personal exemption.2. Additional exemptions An additional exemption of P25,000 for each qualified depended “child” not exceeding four(4) dependents are allowed to qualified individual taxpayer, married or single. Qualified dependent means a legitimate, illegiti- mate, or legally adopted child, chiefly dependent upon and living with the taxpayer who is: * not more than 21 years of age * unmarried * not gainfully employed * or if such dependent regardless of age is incapable of self support because of mental or physical defect

3

Additional exemption for husband and wife Only one of the spouses may claim additional exemption. As a rule, husbandis deemed head of the family and proper claimant of additional exemption.

Wife may claim the additional exemption if: * Husband explicitly waives his right (in the withholding exemption certificate in favor of his wife) * Husband has no income * Husband works abroad and has no taxable income in the Philippines

For legally separated spouses, claimant is the spouse who has custody of the child/children. Total amount of additional exemption shall not exceed the allowed maximum amount.

Personal exemptions for NRA-ETB A non resident alien may claim personal exemptions provided: * The NRA is engaged in trade or business or exercising his profession in the Philippines * There is reciprocity * The NRA-ETB files a true and accurate return covering all income from all

4

sources within the Philippines * The amount of exemption shall be the amount allowed in his country or the amount allowed under the Tax code, whichever is lower.Taxpayers not entitled to personal exemption are: 1) Non resident aliens engaged in trade or business and there is nor reciprocity 2) Non resident aliens not engaged in trade or business.

Case A.Juan Pedro, widower, had the following dependents during the current taxable year: * Four legitimate minor children * Recognized natural child with current common law wife * His common law wife * His physically disabled brother, minor unemployed * His parents who are chiefly dependent and living with himQuestion: How much is the total personal exemptions of the taxpayer?

5

Case B.A taxpayer, married with two(2) qualified dependent child, had the followingdata for the current taxable year. Gross income, Philippines P600,000 Gross income, abroad 200,000 Expenses, Philippines 250,000 Expenses, abroad 120,000Question 1. How much is the taxable income assuming the taxpayer is a resident citizen?Question 2. How much is the taxable income assuming the taxpayer is a non resident alien?Question 3. How much is the taxable income assuming the taxpayer is resident alien?Question 4. How much is the taxable income assuming the taxpayer is a non- resident alien engaged in trade or business in the Philippines? Assume further that his country allows personal exemptions to Filipinos not residing therein as follows: Basic exemption – P60,000 Additional exemption P20,000 per child.Question 5. How much is the taxable income assuming the taxpayer is a non resident alien not engaged in trade or business in the Philippines?